He also points out the proper equation for this market. A collapsed dollar (from inflation) will mean a higher stock market. Since the market is no longer overbought, and with this inflation threat now getting started, market shorts should be taken off the table. (Or a best very short-term trades)
The one thing, IMO, that may counter the above, is a rule that will become effective in Jan 2010 that will bring approx. 1 trillion of off-balance sheet 'bad' assets onto the balance sheet of the banks. (article) This obviously will be a hit to the banks, and allow for more losses. But the system is stronger now, and they will be able to absorb the hit, although, IMO it will hinder their earnings growth for a while. (But I do not know if the markets will pay attention to this pretty important fact, especially if the market keeps rising... something to keep an eye on.)
As for the market, it is at a very high PE, yet does not seem to want to consolidate enough. It bounced off the 320SMA.
With the inflation threat now in play, we are dealing with an economic equation, not market fundamentals. So I do not know if a high PE matters at this juncture.